Sales rise 4.3% in May

Incentives help GM but fail Ford, Chrysler

Underscoring again the link between the Big 3's sales performance and their incentives spending, General Motors' sales jumped 8.1 percent in May, while Ford Motor Co. was off 0.8 percent and the Chrysler group slipped 0.4 percent.

According to CNW Marketing/Research Inc. in Bandon, Ore., GM spent an average $3,916 on incentives in May compared with $3,624 at Ford and $3,511 at Chrysler. In contrast, Honda spent $1,022 per vehicle and Nissan, $1,059.

"Ford has extremely high incentives and its sales were down, but Nissan incentives are lower and sales were up," says CNW President Art Spinella.

"Incentives help move the older stuff, but the new product is what's moving fastest," he says. "The market is getting strong on the back of new product."

GM's sales bump, coupled with stellar gains by many import brands, lifted the overall market by 4.3 percent last month to 1.58 million units, according to the Automotive News Data Center. That generated a seasonally adjusted annualized selling rate of 16.7 million vehicles in May, substantially better than the 16.0 million selling rate a year earlier and up from 16.5 million in April.

For the first five months of the year, sales are off 2.1 percent from a year earlier to 6.8 million units.

Using the daily-sales-weighted method, though, sales in May were up only 0.4 percent from a year earlier to 1.52 million units. That yields a seasonally adjusted annual rate of 16.1 million units, adjusting for one less selling day in May 2002.

With less than a month left in the first half of the year, GM and Ford already are bracing for a slowdown in the second half by scheduling production cuts to trim bloated inventories. Gary Lapidus, who follows the industry for Goldman, Sachs & Co. in New York, estimates that 3.9 million unsold cars and trucks are clogging manufacturer and dealer lots.

With 928,000 units in stock on June 1, an 82-day supply, Ford announced a 15 percent reduction in third-quarter production to 810,000 vehicles, a cut of 141,000 units. Ford said the action reflects declining fleet orders for the Ford Taurus and Mercury Sable and the launch of three vehicles: the F-150 pickup at two factories and the Ford Freestar and Mercury Monterey at a Canadian plant.

GM says it will cut its output by 6.3 percent for the third quarter to 1.2 million units. Chrysler, with a 62-day supply of 503,254 units in stock, has not announced production cuts for the third quarter.

Make less, spend more

Incentives are expected to continue at high levels as the market enters the traditionally slower second half, industry executives and analysts agree. "We don't anticipate a big change in the second half," says Paul Ballew, GM's executive director for market and industry analysis.

The cost of the incentives binge was made clear last week.

On Tuesday, June 3, Chrysler parent DaimlerChrysler AG stunned markets in Europe and North America by disclosing that the U.S. company will post a $1.18 billion operating loss in the second quarter to account for the cost of higher incentives on the 500,000-plus vehicles it has in inventory. The company said the loss also reflects lower than planned residual values on the cars it takes back from rental companies.

But the Chrysler group is not backing away from the fray. Last week, it launched a $100 million summer advertising and sales blitz that will maintain 0 percent financing on most vehicles and rebates of up to $4,500.

Without incentives, says Gary Dilts, senior vice president of sales at the Chrysler group, the industry's seasonally adjusted annual rate would have been only 14.5 million units for the first five months.

George Pipas, U.S. sales analysis manager at Ford, says incentives are generous and are "likely to get more generous - they usually do - as we approach the end of the model year."

Despite the spending, the Big 3's share in May declined 1.1 points to 60.1 percent, while the Japanese brands' combined share increased 1 percentage point to 29 percent. Ford Division, down 0.8 points to 17.3 percent, registered the industry's biggest loss of share in May. The F-150 pickup, Ford's mainstay vehicle, is being replaced.